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Home Equity Loan FAQs

Is a HELOC the same as a home equity loan? What can I use a home equity loan for? Read the frequently asked questions below to learn more and answer some of your initial questions, then contact Great Northern Mortgage for more information.

What’s the difference between a HELOC and a home equity loan?

A home equity loan is similar to other loans in that you receive a single lump sum at the time you close the loan, which you pay back with regular scheduled payments over a predefined time period. A home equity line of credit (HELOC) allows you to access portions of your equity as needed, in a manner similar to how you would use the available credit on a credit card. Some HELOC plans may require minimum monthly payments when you use the available funds.

How much should I borrow with a HELOC?

The short answer is that you should try to anticipate your exact needs as accurately as possible before you apply for a HELOC. Having an especially large HELOC open can make it difficult for you to secure other loans, so it’s best not to apply for the maximum you’re eligible for.

Is HELOC and home equity loan interest tax-deductible?

Most of the time, interest paid on home equity loans or HELOC is tax deductible, and this is a major advantage over using other forms of credit. It’s not always the case, however, so consult a tax advisor.

What documentation do I need to provide in order to get a home equity loan or HELOC?

  • W-2’s and tax returns from the previous 2 years
  • If applicable, rental agreements and tax returns for any rental units you own from the past 2 years
  • Your last two bank statements, and the most recent statements from any mutual funds or retirement accounts and stock accounts
  • A copy of your government ID
  • Settlement agreements and/or divorce decrees, if applicable
  • Non-U.S. Citizens: Please present Green Card or H-1/L-1 visa
  • Two most recent pay stubs and/or proof of income
  • Current mortgage note, if applicable

You may need to provide other documentation upon request, but having these prepared will get the process started and speed things up.

Can I get a fixed rate on these types of products?

HELOCs typically carry a variable rate, generally based on a publicly available index like the US Treasury Bill Rate or Prime Rate, plus a margin. Make sure you know which index provides the interest rate basis for your HELOC and any fluctuations it may be subject to.

What is an Interest Rate Life Cap?

Since HELOC products are tied to your home, by law the interest rates have a cap beyond which they cannot rise during the term of your credit line. Note that some lenders will also put in place protections for themselves that are the opposite, protecting them from interest rate decreases. Review any HELOC plan you look into thoroughly.

How do I qualify for a home equity loan or HELOC?

The process is similar to how you qualified for your original mortgage. We will analyze your credit, employment history, assets, and the value of the property. Other verifications specific to your circumstances may also be required.